UK shares jump as retailers back in demand, hopes pinned on trade deal

By Muvija M and Shashwat Awasthi

(Reuters) - British shares jumped to their highest in almost a month on Tuesday amid hopes of a U.S.-China trade deal and as supermarket chain Tesco led a revival in retailers after upbeat sales data that helped offset Morrisons' disappointing holiday update.

The FTSE 100 <.FTSE> was up 0.7 percent after touching its highest since Dec. 13 earlier, and the mid-caps <.FTMC> were up 1.1 percent to their its loftiest since Dec. 5.

The midcap index crossed its 50-day moving average - seen as a technical support level - during the session, although it closed under the level.

The bourse, which is more exposed to uncertainties at home compared to the exporter-heavy FTSE 100, is likely to come under the spotlight with a parliamentary vote on Prime Minister Theresa May's disputed Brexit deal next week.

Investors pinned hopes of a possible truce in the protracted trade dispute, and a member of the U.S. delegation said the United States and China would continue trade talks in Beijing for an unscheduled third day.

That boosted stocks with a larger exposure to China: HSBC <HSBA.L> rose 1.1 percent, Standard Chartered <STAN.L> added 3.1 percent. Peer Prudential <PRU.L> also climbed 2.2 percent higher.

But uncertainty around Britain's divorce from the Europe Union continued to weigh on sentiment, keeping many investors on the sidelines. Volumes were just over half of the 90-day average daily turnover.

Sales data for the critical Christmas period from Nielsen and Kantar Worldpanel dispelled some of the Brexit gloom.

While the data showed that discount shops Aldi and Lidl gained market share, overall grocery sales in the 12 weeks to Dec. 30 rose 1.6 percent, according to Kantar Worldpanel.

The sector <.FTNMX5330> rose 2 percent to its highest since Dec. 7, led by Tesco <TSCO.L> after it chalked up a gain of 0.4 percent in the three months.

The data also lifted Next <NXT.L> and Marks & Spencer <MKS.L> more than 5 percent and comes after positive updates from Aldi UK and other high street chains that brought back some appetite for consumer shares.

Still, investors shunned Morrisons <MRW.L>, which was among the biggest blue-chip losers and at its lowest since April last year after Britain's No. 4 supermarket chain missed sales forecasts.

"Despite slashing prices left, right and centre, Morrisons remains under pressure from the German discounters," said IG chief market analyst Chris Beauchamp.

AIM-listed Footasylum <FOOT.L> also tumbled 12.3 percent to a life low after it cut forecast for the year, blaming challenging Christmas trading and weakening consumer sentiment that led to some of the "most difficult" business conditions in recent years.

Meanwhile, Rolls-Royce <RR.L> surged 5.3 percent with some traders citing positive news from Airbus <AIR.PA> as the driver while another pointing to Oddo BHF adding the engine maker to its conviction list.

On the mid-caps, a positive update from pub operator Greene King pushed its shares 5.6 percent higher, while building material supplier SIG <SHI.L> suffered its worst day in 10 months.

SIG gave up 5.2 percent after lower revenue on the back of a slowdown in construction markets in UK, France and Germany.

Outsourcing firms Mears <MERG.L> and Serco <SRP.L> swiftly rose after winning contracts totalling 2.9 billion pounds from the government to provide accommodation and support for asylum seekers.

(Reporting by Muvija M and Shashwat Awasthi in Bengaluru; Editing by Josephine Mason and Alison Williams)